<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period ended March 31, 1997
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission file number 0-19391
NAB ASSET CORPORATION
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(Exact name of registrant as specified in its charter)
Texas 76-0332956
- ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
19200 Von Karman Ave., Ste. 950, Irvine, CA 92612
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 475-4444
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of March 31, 1997, there were 5,091,300 shares of common stock, $.10 par
value per share, of the registrant outstanding.
<PAGE>
PART I -- Financial Information.
Item 1. Financial Statements
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
------ --------- ------------
<S> <C> <C>
Cash and cash equivalents $ 2,312 $ 3,315
Receivables:
Commercial loans held for investment, net 1,271 -
Residential mortgage loans held for sale 11,144 12,648
Other receivables 124 1,092
Vehicle and parts inventory - 3,446
Property and equipment, net 408 340
Costs in excess of net assets acquired, net 668 1,095
Net assets of discontinued operations 220 -
Other assets 160 201
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$16,307 $22,137
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable:
Mortgage warehouse line of credit 10,085 11,819
Automobile flooring lines of credit - 3,349
Accounts payable and accrued expenses 525 1,194
Deferred income 246 120
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Total liabilities 10,856 16,482
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Minority interest 68 50
Shareholders' equity (note 1):
Common stock: $.10 par value, 30,000,000
authorized shares
5,091,300 issued and outstanding at March 31,
1997 and December 31, 1996 509 509
Additional paid-in capital 7,217 7,217
Accumulated deficit (2,343) (2,121)
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Total shareholders' equity 5,383 5,605
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$16,307 $22,137
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Gains on sales of loans $ 1,370 $
Interest income 525
Other operating revenues 119
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Total revenues 2,014 --
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Costs and expenses:
Compensation and benefits 1,221
Interest expense 269
General and administrative 521
Minority interest in earnings 18
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Total costs and expenses 2,029 --
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Net loss from continuing operations (15) --
Net earnings (loss) from discontinued
operations, net of income taxes:
Retail automobile sales (207) --
Real estate services -- 891
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Net earnings (loss) $ (222) $ 891
========== ==========
Net loss per share from
continuing operations $ -- $ --
========== ==========
Net earnings (loss) per share $ (0.04) $ 0.21
========== ==========
Weighted average number of common
and common equivalent shares outstanding 5,091,300 4,208,835
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (15) $ -
Adjustments to reconcile net loss
to net cash from operating
activities:
Cash provided by discontinued
operations (207) 504
Depreciation and amortization 71 -
Minority interest 18 -
Net changes in:
Residential mortgage loans
originated, purchased and sold 1,504 -
Accounts receivable 127 -
Deferred income 126 -
Other assets 403 -
Net increase in net assets of
discontinued operations 30 -
Accounts payable and accrued
expenses 52 -
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Net cash from operating
activities 2,109 504
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Cash flows from investing activities:
Commercial loans purchased (1,390) -
Principal collections on commercial loans 119 -
Purchases of fixed assets, net (107) -
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Net cash from (used by) investing
activities (1,378) -
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Cash flows from financing activities:
Net borrowings under warehouse line of
credit (1,734) -
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Net cash from (used by) financing
activities (1,734) -
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Net increase in cash and cash equivalents (1,003) 504
Cash and cash equivalents at beginning of
period 3,315 1,961
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Cash and cash equivalents at end of period $ 2,312 $ 2,465
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period
Interest $ 44 $ -
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to the Financial Statements
(1) Summary of Business and Significant Accounting Policies
NAB Asset Corporation, a Texas Corporation (the "Company" or "NAB") is
primarily engaged in the financial services business. Prior to June 5, 1996 the
Company's business consisted of the acquisition, ownership, management and
disposition of loans and real estate for its own account and the account of
others. As discussed in Note (3), the Company has entered into a definitive
agreement to sell its retail automotive sales business. The company has reported
the results of the segment as discontinued operations for financial statement
purposes.
The Company was organized on March 31, 1991, by National Asset Bank (a bank
in liquidation) (the "Bank") as a wholly-owned subsidiary of the Bank for the
purpose of acquiring substantially all of the assets of the Bank through a
series of transactions and agreements intended to effect the final liquidation
of the Bank. The Company acquired substantially all of the assets of the Bank in
consideration of the issuance by the Company of shares of its common stock, $.01
par value (the "Common Stock"), and the assumption of all the Bank's
liabilities. Immediately following such acquisition, the Bank distributed the
shares of Common Stock received to the holders of the Bank's common stock, (the
"Bank Common Stock"), on the basis of one share of Common Stock for each ten
shares of the Bank Common Stock held of record as of the close of business on
July 17, 1991. Because the Company was formed for the purpose of effecting the
acquisition of substantially all of the Bank's assets, the Company had only
limited operating activities prior to such acquisition.
On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS
Investing Corp. ("CPS Sub"), a wholly owned subsidiary of CPS, was merged with
and into NAB. Under the terms of the Plan and Agreement of Merger and in
exchange for all of the outstanding shares of NAB $.01 par value common stock,
the shareholders of NAB received on a pro rata basis (i) an aggregate cash
distribution of $15.3 million ($3.64 per share), (ii) an undivided interest in a
liquidating trust ("Liquidating Trust"), and (iii) 62% of the outstanding shares
of common stock, $.10 par value (the "New Common Stock") of the new combined
company which had a net asset value of $7.5 million as of the merger date. The
Liquidating Trust was established for the benefit of converting the trust assets
to cash for the NAB shareholders. On June 5, 1996 in connection with the Merger,
NAB contributed approximately $3.0 million in cash and all of the remaining non-
cash assets of NAB with a net book value of $3.7 million to the Liquidating
Trust. No gain or loss was recognized by NAB in connection with the merger.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share".
SFAS 128 supersedes APB Opinion No. 15, ("APB 15") "Earnings per Share" and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. SFAS 128 will replace the presentation of primary EPS
with a presentation of basic EPS, and fully diluted EPS with diluted EPS. SFAS
128 will also require dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator of the diluted
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EPS computation. This statement shall be effective for financial statements for
both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. The Company has determined that this statement
will have no significant impact on the financial position or results of
operations for 1997.
(2) Basis of Financial Statement Presentation
The consolidated balance sheets of the Company as of March 31, 1997, the
related consolidated statements of operations for the three months ended March
31, 1997 and 1996 and the related consolidated statements of cash flows for the
three months ended March 31, 1997 and 1996 are unaudited. These statements
reflect, in the opinion of management, all material adjustments consisting only
of normal recurring accruals, necessary for a fair presentation of the
consolidated balance sheets of the Company as of March 31, 1997, and results of
consolidated operations for the three months ended March 31, 1997 and 1996 and
consolidated cash flows for the three months ended March 31, 1997 and 1996. The
results of consolidated operations for the unaudited periods are not necessarily
indicative of the results of consolidated operations to be expected for the
entire year of 1997.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Securities and Exchange
Commission ("SEC") Form 10-Q and therefore, do not include all information and
footnotes normally included in consolidated financial statements prepared in
conformity with generally accepted accounting principles. Accordingly, these
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on SEC Form 10-K for the year ended December 31, 1996.
(3) Subsidiary Operations
Investment in Mortgage Portfolio Services, Inc. On July 10, 1996, NAB
acquired from CPS 84 percent of the outstanding voting common stock of Mortgage
Portfolio Services, Inc. ("MPS") for a purchase price of $300,000 in cash. The
remaining common stock of MPS is owned by its management. NAB also acquired
$2.25 million of MPS preferred stock through conversion of debt to equity and
contributed approximately $249,000 to the additional paid-in capital of MPS. The
MPS preferred stock acquired by NAB provides for cumulative dividends at a rate
of 10% per annum and has a liquidation preference over the MPS common stock
equal to the purchase price of the MPS preferred stock plus any accrued and
unpaid dividends.
MPS is a mortgage banking company with headquarters in Dallas that
specializes in the purchase, origination and servicing of residential mortgage
loans that do not meet traditional secondary market guidelines due to credit or
employment history of the borrower, debt-to-income ratios, or the nature of the
collateral. MPS originated $41.63 million in loans for the three months ending
March 31, 1997.
<PAGE>
INVESTMENT IN NAFCO, INC. In January, 1997, NAB acquired 84 percent of
the voting common stock and preferred stock of a newly created entity, NAFCO,
Inc., for a purchase price of $1,501,000. The NAFCO preferred stock acquired by
NAB provides for cumulative dividends at a rate of 10% per annum and has a
liquidation preference over the NAFCO common stock plus any accrued and unpaid
dividends.
In January, 1997, NAFCO, Inc. acquired a portfolio of loans of which the debtors
are rent-to-own and rental purchase retail operations with a principal balance
of $1,966,000 at a discount for a net purchase price of $1,227,000. The
discount of $739,000 is being amortized in accordance with FASB 91 and will be
fully amortized by March, 2001. NAFCO, Inc. is a finance company that
specializes in providing financing and consulting services to small
independently owned rent-to-own retailers throughout the United States.
DISPOSITION OF CARS USA, INC. In March of 1997, NAB entered into a
definitive agreement, subject to certain third party consents, to sell its
interest in CARS for $1,500,000. The agreement calls for a down payment of
$200,000 and a note for $1,300,000 of which $500,000 in principal is due on the
first anniversary of the purchase and sale agreement and $800,000 is due on the
second anniversary of the purchase and sale agreement. The note bears interest
at 9% and is payable quarterly. The acquirer is a newly formed company owned by
Charles E. Bradley, Sr. and Charles E. Bradley, Jr. Mr. Bradley, Sr. is the
Chairman of the Board and Chief Executive Officer of NAB and Mr. Bradley, Jr. is
a director of NAB. The $1,300,000 note is guaranteed by Mr. Bradley, Sr. The
expected disposal date is to occur in May of 1997.
As a result of the decision to divest NAB of its retail automobile sales
company, all related operating activity was reported as discontinued operations
for financial reporting purposes. The operating results of the discontinued
retail automobile sales company for the three months ended March 31, 1997 are
summarized as follows:
<TABLE>
<S> <C>
Total revenue $ 2,198,968
Total expenses (2,405,585)
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Net (loss) from discontinued operations $ (206,617)
-----------
</TABLE>
The assets and (liabilities) of the discontinued retail automobile sales
segment at March 31, 1997, were as follows:
<TABLE>
<S> <C>
Vehicle and parts inventory $ 3,112,985
Other assets 467,689
Goodwill 392,981
Automobile flooring lines of credit (3,026,157)
Accounts payable and accrued expenses (727,076)
-----------
Net assets of discontinued operations $ 220,422
-----------
</TABLE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to assist in understanding of the
Company's financial position as of March 31, 1997, and results of operations for
the period from January 1 through March 31, 1997 compared to the quarter ended
March 31, 1996. The notes to the Company's consolidated financial statements
included in this report and the Company's annual Report on Form 10-K for the
year ended December 31, 1996 and the notes thereto, should be read in
conjunction with this discussion.
General
The Company's primary operations are mortgage lending, commercial lending
to rental purchase (sometimes referred to as "rent to own") businesses, and
retail automobile sales. As discussed in Item 1, on March 26, 1997, the Board
of Directors approved a definitive agreement, subject to certain third party
consents, to sell its interest in CARS. Prior to the Merger on June 5, 1996,
the Company's primary operations consisted of the acquisition, ownership,
management and disposition of loans and real estate for its own account and the
account of others. For financial statement purposes, the retail automobile
sales operations have been classified as discontinued operations.
Results of Operations
Results of operations for the three months ended March 31, 1997 reflected a
net loss from continuing operations of $15,000, or $(0.00) per share, and a net
loss from discontinued operations of $207,000, or $(0.04) per share. Income
from the discontinued real estate operations for the three months ended March
31, 1996 were $891,000, or $0.21 per share.
Revenues from continuing operations for the three months ended March 31,
1997, was $2,014,000. Included in revenues were gains on sales of loans of
$1,370,000 and other operating revenues, including interest of $644,000.
Operating expenses relating to continuing operations for the three months
ended March 31, 1997, were $2,029,000, and consist primarily of costs and
expenses associated with mortgage banking operation of $1,616,000. The costs
and expenses of the mortgage banking operations were comprised primarily of
compensation and benefit expenses of $968,000 and general and administrative
expenses of $376,000.
Liquidity and Capital Resources
At March 31, 1997, NAB had approximately $2,312,000 in cash and cash
equivalents compared to $2,465,000 at March 31, 1996.
The Company's primary requirements for liquidity is to fund MPS's mortgage
loans and NAFCO's rental purchase loans. MPS currently has in place a line of
credit totaling $15,000,000 for which it can finance 97% of the mortgage loan
principal balance, and NAFCO is currently
<PAGE>
negotiating a line of credit with a financial institution. NAFCO has not yet
begun to originate any new loan business.
It is anticipated that both MPS and NAFCO will require, and the Company
believes it can obtain, additional financing to support the growth of MPS's and
NAFCO's loan production.
CARS incurred a $207,000 loss for the period of January 1, 1997 to March
31, 1997. As discussed in Item 2 above, the company has entered into a
definitive agreement for the sale of CARS. It is not anticipated that,
subsequent to the sale of CARS, any additional capital will be utilized in the
retail automotive sales line of business.
The Company anticipates that any material capital expenditure requirements
relating to the operations can be funded with existing liquidity or additional
bank borrowings that can be obtained on terms no less favorable than it's
current bank borrowings.
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) EX-27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 14, 1997
By: /s/ Michael W. Caton
-------------------------------------------------
Michael W. Caton
President and Chief Operating Officer
By: /s/ Alan Ferree
-------------------------------------------------
Alan Ferree
Senior Vice President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 2,312 3,315
<SECURITIES> 0 0
<RECEIVABLES> 12,539 13,740
<ALLOWANCES> 0 0
<INVENTORY> 0 3,446
<CURRENT-ASSETS> 0 0
<PP&E> 408 340
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 16,307 22,137
<CURRENT-LIABILITIES> 10,856 16,482
<BONDS> 0 0
0 0
0 0
<COMMON> 509 509
<OTHER-SE> 4,874 5,096
<TOTAL-LIABILITY-AND-EQUITY> 16,307 22,137
<SALES> 0 0
<TOTAL-REVENUES> 2,014 0
<CGS> 0 0
<TOTAL-COSTS> 2,029 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 269 0
<INCOME-PRETAX> (15) 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (15) 0
<DISCONTINUED> (207) 891
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (222) 891
<EPS-PRIMARY> (0.04) 0.21
<EPS-DILUTED> (0.04) 0.21
</TABLE>
